The personal blog of Peter Lee a.k.a. "China Hand"... Life is a comedy to those who think, a tragedy to those who feel, and an open book to those who read. You are welcome to contact China Matters at the address chinamatters --a-- prlee.org or follow me on twitter @chinahand.

Tuesday, June 12, 2007

BDA: Now the Fed Gets Involved

With respect to the reports in the Wall Street Journal and the New York Times concerning the Russian bank/Federal Reserve Bank route to remitting the Banco Delta Asia funds to a North Korean account, my initial, jaundiced view was to take it as merely a piece of negative confirmation: that the efforts to obtain a Treasury waiver for a conventional transaction mediated by a commercial bank had failed.

Recently, a Russian bank agreed to be the vehicle for the transaction, American officials said, provided that it could obtain dollars to carry it out.

With American laws barring American commercial banks from supplying the dollars, officials turned to the Federal Reserve Bank of New York to facilitate the deal with North Korea.“The United States is working with Russian and Macanese authorities to facilitate the transfer” of North Korean funds that were previously frozen at Banco Delta Asia, said Molly Millerwise, a Treasury Department spokeswoman. “We appreciate the willingness of the Russian government to facilitate this transaction and the good cooperation of the Macanese authorities.”...

American officials said because the Federal Reserve Bank of New York was not a private bank, but part of the Federal Reserve system, it was not subject to American laws barring commercial transactions involving illicit funds. The system is independent of the government but run by presidential appointees.

QUESTION: Can you tell us what the deal is with the BDA and the -- and this Treasury has come out and said that yeah, you are in fact working with the Russians on this. So can you give us a --

MR. MCCORMACK: Can't get ahead of my friends over at Treasury. I know that they've talked a little bit about it, but I can't really offer any more details at this point other than to say and to repeat what I have said before, that we'd all like to see this behind us so we can get back down to the real business of the six-party talks, denuclearization of the Korean Peninsula. We have not yet received word from the North Korean Government to any of the six parties that they have received their money in a new bank account. So when and if that happens and they acknowledge it, then maybe -- perhaps be able to talk a little bit more about this and certainly in the sense that it is behind us at that point.

QUESTION: Right, but -- I mean, in terms of where you have been over the past couple months on this --

MR. MCCORMACK: Right.

QUESTION: -- in the stalemate, is there some -- any sense of hope that it could finally really now be on the brink of being solved?

MR. MCCORMACK: You know, this is one of those issues where until it is done, I'm not going to be laying down any bets. Certainly, we would like to see it done. I know that Treasury has talked a little bit about a possible mechanism to get this done. We'll see.

Emphasis, as they say, added.

This is apparently not just another desperate State Department Hail Mary.

This is apparently something that Treasury—presumably because it has been ordered to find a way out of the impasse—has come up with.

We can assume Banco Delta Asia still has an account with the Federal Reserve—as do the Russians—and the FRB will agree to debit and credit the various accounts directly so that the Russian bank can deposit $25 million in a North Korean account without going through a correspondent bank.

If Treasury supports it, it will probably work.

As a sidebar, I note Mr. McCormack’s comment about the money going into a “new account”.

Maybe it was necessary to find a bank that had no previous North Korean accounts, so there would be no issue of commingling the $25 million in funds released as a Six Party deal concession with other tainted North Korean lucre, so it can be received and remitted with enmeshing the bank in accusations of handling illicit North Korean funds.